Average: Taking stock

For almost a hundred years, the application of average to claims have caused enormous damage to the reputation of the insurance industry. Finally there is a solution that holds significant benefits for all parties to an insurance contract.

The application of average has resulted in many disputes over the past 90 or more years. It has entrenched the perception that insurers will proactively look for reasons not to pay claims. Of course, the reality is more complex and the root of the problem is policyholders not paying the correct premium based on the correct sum insured.

The solution is to provide policyholders with professional assistance in the compilation of comprehensive asset registers, in order to establish the correct replacement values of assets, whether fixed or movable.

This can be achieved through proper risk surveying, the compilation of a comprehensive asset register with current replacement values of all such assets, together with the calculation of the insurance replacement value of fixed property. “The lack of proper surveying is a major contributing factor to the existence of the average clause – which has resulted in policyholders and insurers losing billions: policyholders lost money in not being paid the value of their claims, and insurers lost money in not receiving the correct premium income due to under-insurance,” says Vernon Albrecht, CEO of NID (National Inventory Data). “This is something we believe can be addressed successfully for the first time with the launch of the NO AVERAGE CERTIFICATE.”

Innovative new solution

NID recently launched the NO AVERAGE CERTIFICATE, a concept that is a first for the industry and will benefit policyholders, as well as their brokers and insurers.

The NO AVERAGE CERTIFICATE serves to encourage insurers, brokers and policyholders to demand proper underwriting prior to the acceptance of any new business or, in the event of existing business, prior to the next renewal date of the policy.

Policyholders, individually or through their brokers, become active clients of NID, who then conducts a risk survey of the risk address and compiles a comprehensive asset register of all movable assets, along with digital images. This allows NID to calculate the insurance replacement values of all the fixed assets.

Policyholders’ role

Policyholders have to adhere to NID’s terms and conditions relating to the NO AVERAGE CERTIFICATE at all times. The most important condition is that policyholders will agree to the prompt communication of all information required as part of the terms and conditions or by NID from time to time.

Once the policyholder had met all of the criteria, NID will issue a certificate. The certificate will be valid until the renewal date of the policy.

Two months prior to the renewal date of the policyholder’s policy, will NID contact the policyholder in order to ensure the correctness of his or her short-term insurance portfolio. Once all the changes and updates have been done, including the updating of replacement values as at the time of renewal, a new NO AVERAGE CERTIFICATE will be issued and will be valid for the next twelve months.

Guaranteed for peace of mind

NID as taken this service offering one step further by offering a guarantee that reflects their confidence in their service. “In the unlikely event of an insurer still applying average at the time of a claim, and NID not being able to prove to the insurer and/or the Short-term Ombudsman that the application of average is incorrect, due to an error on NID’s part, the company will pay the policyholder the difference not being paid by the insurer. This provides our clients absolute peace of mind,” explains Albrecht.

A new way forward

NID envisages that the issuing of a NO AVERAGE CERTIFICATE will become a prerequisite to the issuing or renewal of any short-term policy. “This will most certainly result in insurers and underwriters having to revisit their underwriting criteria as part of a new way forward,” comments Albrecht.

Not all the players in the industry are ready for such a transformation, but NID has not allowed this to slow down their drive to improve underwriting. “After the many years of negotiating with insurers about the significant impact such a certificate could have on the industry, we made a decision to take it upon ourselves to launch of the industry-first NO AVERAGE CERTIFICATE, regardless of the involvement of the insurers. We simply could not prolong the launch, hoping that the industry might one day realise the value of professional risk surveying.”

Proactive player

Often at the forefront of new innvotions, Santam is the exception to the rule. “During our years of negotiations with Santam, NID focused on the importance of risk surveying, and more specifically, risk surveying together with the compilations of asset registers of all movable property, designed to assist policyholders to establish the correct sums insured and to avoid being exposed to averages,” says Albrecht.

“After about four years, Santam launced the concept of The Extreme Risk Makeover. The aim was to have NID conduct risk surveys and report back to Santam regarding the risk exposure and recommendations for possible improvements to create a safer environment. NID signed the national agreement with Santam late in 2007 and the Extreme Risk Makeover commenced during early 2008. More the 3000 clients benefited from this campaign.”

Immense value add for brokers

NID believes that brokers have a very important role to play. Brokers can register on the NID ONLINE system free of charge. This will allow them to deal directly with NID by requesting services online.

The system allows for excellent communications between the initiator of any request, keeping all parties involved informed of the progress at all times. Brokers will have access to final survey reports, asset registers and insurance replacement calculations, as well as digital images and current replacement values.

“In the event of a claim, NID will be available to assist the broker in the compilation of claims reports, complete with digital images and replacement values of all such assets as on the date of such a claim,” notes Albrecht. “Another huge benefit will be the annual online renewal updates, which will save brokers hundreds of hours during the year, so they can focus on expanding their businesses.”

Solid foundation

Unsurprisingly, the uptake of this new service has been overwhelming and the future outlook is certainly encouraging. “The elimination of average in the insurance industry has been one of NID’s main objectives since its establishment nine years ago,” notes Albrecht. “The launch of the NO AVERAGE CERTIFICATE has re-affirmed the significant role that NID is playing as a service provider within the short-term industry. We have set ourselves apart through the ability to offer our services an a national level and through our state-of-the-art software system to drive and guarantee exceptional service levels at all times. We are continuously innovating solutions, for example, insurers, brokers and policyholders can view and update all reports and or asset registers online and in real time. We believe that working together with insurers, brokers and policyholders, we will continue to innovate solutions to ensure average is forever eliminated from our industry, and that the perception of an adversarial relationship between the parties can be transformed into one of mutual co-opration and mutual benefit.”